As Your Fuel Prices Drop, Airlines Still Suffer

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Jet and avgas fuel prices have dropped significantly from a peak hit this summer, but that particular savings has not been passed on to passengers as ticket prices reflect new challenges for airlines faced with global economic frugality. In short, the airlines have traded a fuel crisis for an economic one and are still not making money. Fuel surcharges are on the decline, as is business and premium travel, combining with fare revenue that has fallen more than 13 percent in November. Cutting capacity by 10 percent has barely helped increase revenue per seat mile by less than half of one percent domestically, showing the smallest year-over-year improvement in more than a year. The changes have played out so violently and so rapidly -- fuel prices in 2008 surged more than 40 percent -- that airlines have ground to make up and airfare fuel surcharges have not yet followed fuel prices down. Presently, the Air Transport Association forecasts a nearly 20-percent drop in air travelers over the three-week Christmas/New Year season, and looking ahead on a more global scale ICAO predicts that average passenger load factors will dip through 2009 before rebounding in 2010 to 2007 levels. That is expected to translate into operating losses for ICAO airlines for 2008 with profitability expected to return in 2009, increasing in 2010. But some carriers locked in to fuel contracts may suffer.

The turn to profitability is expected to come through capacity cuts and continued low fuel costs, but many airlines locked into term fuel contracts at 2008 prices. Those carriers will not be able to adjust their fares down until those contracts expire and new deals are negotiated. To make up for it, targeted deal pricing between specific locations may be offered ... and there's always general aviation and air taxis that may be more flexible and may also offer more affordable travel options for pioneering travelers willing to think outside the box.